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Group of 400 tourism businesses launches official campaign to cut VAT to 5% on tourism services

A group representing nearly 400 hospitality businesses, largely in the hotel and leisure sector, today launched its official campaign to cut VAT on accommodation and attractions to just 5% in Parliament.

The Campaign for Reduced Tourism VAT, which is led by the British Hospitality Association (BHA), Merlin Entertainments, Bourne Leisure and the British Association of Leisure Parks, Piers and Attractions (BALPPA), presented a report looking at the benefits of a tax cut to the Tourism All Party Parliamentary Group on Tuesday this week.

The comprehensive report, which has taken months to put together, was produced after the campaign was allowed to feed its own calculations into an official Government economic model, used by HMRC, which is built and maintained by Professor Adam Blake of Bournemouth University.

The campaign also met with Treasury officials to discuss the analysis. Professor Blake’s conclusion from the analysis was that reduced VAT on tourism services represented a “most efficient, if not the most efficient, means of gathering GDP gains to the exchequer that I have seen with the model”.

Graham Wason, chairman of the Cut Tourism VAT campaign said: “Our campaign is focused on asking the Government to reduce the rate of VAT charged on tourism to 5% in line with our international competitors. The Treasury recently invited us to use its own financial model to evaluate the impact of VAT on the UK economy. The results are exciting and compelling. A VAT cut on visitor accommodation and attractions would have a triple whammy benefit. It would not cost the Government anything and would drive £4b of new revenue into the UK and create 80,000 jobs. This cut in VAT would benefit families and businesses all over the country.

“David Cameron set a target for the UK to move up the international league tables. Unfortunately, we’ve moved the other way and slipped to 7th place and are ranked almost bottom on price competitiveness. We launched our Parliamentary campaign at the House of Commons this week. Our next steps are to show every MP the value of reduced tourism VAT to jobs and the economy in their constituency and convince them to persuade the Chancellor to bring in this measure during the life of this government.”

Kurt Janson, policy director at the Tourism Alliance, said: “A study released last week by the Office for National Statistics shows that the tourism industry accounts for 9.1% of all employment in the UK and that the tourism industry was responsible for 33% of all new jobs created between 2009 and 2011. This highlights the fact that tourism is one of the UK’s few growth industries at the moment and has the potential to contribute significantly to both national and regional economies. Yet the UK tourism industry is at a significant competitive disadvantage to its European counterparts in that businesses pay full-rate VAT rather than the reduced-rate VAT that apply in almost all other European destinations.

“The Tourism Alliance is convinced that this new econometric modelling, using the Treasury’s own model shows that there is compelling case to bring the rate of VAT on accommodation and attractions into line with other European destinations. By competing on a level playing field, we can create more jobs, increase inward revenue into the UK and help provide much needed growth for the UK economy. All at no cost to the Exchequer.”

For more than 20 years, the UK tourism industry has been at a competitive disadvantage to many other European countries because VAT is applied to tourism services at the standard rate. Most EU countries enjoy a reduced rate. The rate of VAT on visitor accommodation in France and Germany is 7%, while it is 8% in Spain.

The economic benefit of a VAT cut:

The latest report into the effects of a VAT cut, produced by Deloitte, former Deloitte partner Graham Wason, and former Deloitte chief economist Michael Nevin, shows that a VAT cut to 5% on tourism services would:

Create 78,000 jobs over 10 years

Create a net present value fiscal return to the Exchequer over 10 years of £2.6b (2011 prices)

Assuming VAT were to reduce in 2013, the first year would see a direct loss to the Exchequer in VAT revenue of £1.7b, but the notional loss would be lower at £232m, after the effect increased trade and employment were taken into effect.